Contractual Governance Mechanisms and Supplier Delivery Performance: Testing mediating effects of Buyer-Supplier Trust and Supplier Opportunism

Abstract

The purpose of this research is to examine how governance mechanisms impact on supplier delivery performance intermediated by buyer-supplier trust and supplier opportunism. The study focuses on Uganda’s public sector as a case of a less developed country. The research was prompted by frequent reports which indicate that outsourcing contracts fail to deliver on schedule, budget, specifications, and quality and do not deliver expected value to the public. This could be attributed to poor governance mechanisms, lack of buyer-supplier trust and high levels of supplier opportunism. While it has been assumed that governance mechanisms result in better supplier delivery performance, empirical research to corroborate these claims in less developed countries context is very sparse. A theoretical model and hypotheses are developed from literature review.  A cross sectional data set collected from 632 Uganda’s public sector staff is used to validate the model. Hierarchical regression results reveal that governance mechanisms are significant predictors of supplier delivery performance. The results also suggest that the impact of governance mechanisms on supplier delivery performance is intermediated by buyer-supplier trust and supplier opportunism. Managers of public sector need to design well outsourced contracts and create mutual trust with their suppliers to improve supplier delivery performance. Similarly, there is a need to deliberately mitigate supplier opportunism that appears to significantly diminish supplier delivery performance.

Keywords Outsourcing contracts, governance mechanisms, buyer-supplier trust, supplier opportunism, public sector, supplier delivery performance

Paper type Research paper